#TradingTypes101

Traders often get liquidated on Binance and other crypto exchanges due to a combination of misunderstood leverage, volatile markets, and poor risk management. Here’s a breakdown of why this keeps happening and the hidden leverage trap that catches many off guard:

🔍 The Hidden Leverage Trap: Explained

1. High Leverage = Tiny Margin for Error

Binance allows leverage up to 125x on certain pairs. That means:

With 125x leverage, a 0.8% move in the opposite direction can wipe out your entire position.

Many traders don't fully understand how narrow the liquidation window becomes with higher leverage.

2. Cross vs Isolated Margin Confusion

Isolated Margin: Only the margin for a single trade is at risk.

Cross Margin: All available balance in your futures account is at risk.

Many new traders unknowingly use cross margin and get wiped out when one bad trade drains the entire account.

4. Misunderstanding Position Size vs Account Size

A common mistake:

Small account + large position size (due to leverage) = high risk of liquidation.

Traders often max out leverage without considering the liquidation price.

⚠️ How the Trap Works (Example)

Let’s say you have $100 and use 50x leverage:

You open a $5,000 position.

A 2% move against you equals a $100 loss = liquidation.

Traders often focus on potential profits without calculating how close their liquidation price is.

💡 Avoiding the Trap

1. Use lower leverage – 3x–10x is more sustainable.

2. Set stop-losses based on your account size, not just trade idea.

3. Use isolated margin to protect your full balance.

4. Understand the liquidation price before opening a trade.

🧠 Final Thoughts

The leverage offered on Binance is a double-edged sword—powerful but dangerous. The hidden trap lies in not understanding how close to liquidation you are. In crypto’s fast-moving markets, even a small price move can destroy an over-leveraged position.